Unprofitable companies can burn through cash quickly, leaving investors exposed if they fail to turn things around. Without a clear path to profitability, these businesses risk running out of capital or relying on dilutive fundraising.

Finding the right unprofitable companies is difficult, which is why we started StockStory - to help you navigate the market. That said, here are three unprofitable companiesto steer clear of and a few better alternatives.

Wayfair (W)

Trailing 12-Month GAAP Operating Margin: -2.5%

Founded in 2002 by Niraj Shah, Wayfair (NYSE: W) is a leading online retailer of mass-market home goods in the US, UK, Canada, and Germany.

Why Do We Steer Clear of W?

1. Active Customers have declined by 1.7% annually over the last two years, suggesting it may need to revamp its features or user experience to stay competitive
2. Monetization and engagement metrics haven’t budged over the last two years, suggesting it may need to increase the efficacy of its platform
3. Gross margin of 30.3% is below its competitors, leaving less money to invest in areas like marketing and R&D

Wayfair’s stock price of $79.06 implies a valuation ratio of 19.4x forward EV/EBITDA. Check out our free in-depth research report to learn more about why W doesn’t pass our bar.

Avis Budget Group (CAR)

Trailing 12-Month GAAP Operating Margin: -1.5%

The parent company of brands such as Zipcar and Budget Truck Rental, Avis (NASDAQ: CAR) is a provider of car rental and mobility solutions.

Why Is CAR Risky?

1. Demand for its offerings was relatively low as its number of available rental days - car rental has underwhelmed
2. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

Avis Budget Group is trading at $158.76 per share, or 11.4x forward P/E. Dive into our free research report to see why there are better opportunities than CAR.

Azenta (AZTA)

Trailing 12-Month GAAP Operating Margin: -5.3%

Serving as the guardian of some of medicine's most valuable materials, Azenta (NASDAQ: AZTA) provides biological sample management, storage, and genomic services that help pharmaceutical and biotechnology companies preserve and analyze critical research materials.

Why Do We Think AZTA Will Underperform?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 7.2% annually over the last five years
2. Sales were less profitable over the last five years as its earnings per share fell by 18.7% annually, worse than its revenue declines
3. Free cash flow margin dropped by 22.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up

At $30.42 per share, Azenta trades at 40.2x forward P/E. To fully understand why you should be careful with AZTA, check out our full research report (it’s free).

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